Economists give strong critique of neoliberal doctrine ushered in by Ronald Reagan and Margaret Thatcher in the 1980s

A strong warning that austerity policies can do more harm than good has been delivered by economists from the International Monetary Fund, in a critique of the neoliberal doctrine that has dominated economics for the past three decades. In an article seized on by the shadow chancellor, John McDonnell, the IMF economists said rising inequality was bad for growth and that governments should use controls to cope with destabilising capital flows.

The IMF team praised some aspects of the liberalising agenda that was ushered in by Ronald Reagan and Margaret Thatcher in the 1980s, such as the expansion of trade and the increase in foreign direct investment. But it said other aspects of the programme had not delivered the expected improvements in economic performance. Looking specifically at removing barriers to flows of capital and plans to strengthen the public finances, the three IMF economists came up with conclusions that contradicted neoliberal theory.

“The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries,” they said. “The costs in terms of increased inequality are prominent. Such costs epitomise the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.­

“Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.­”The UK chancellor, George Osborne, announced austerity plans when he took over at the Treasury in May 2010, in an effort to tackle Britain’s record peacetime budget deficit and rising national debt . But his view that paying off the debt accumulated during the deep slump of 2008-09 was vital for the economy’s long-term growth prospects was challenged by the IMF.

Osborne said his austerity programme would give the government more flexibility in the event of a future crisis, but the IMF said taking out this sort of insurance policy would only be worth it if the benefits exceeded the costs.“It turns out, however, that the cost could be large – much larger than the benefit. The reason is that, to get to a lower debt level, taxes that distort economic behaviour need to be raised temporarily or productive spending needs to be cut – or both. The costs of the tax increases or expenditure cuts required to bring down the debt may be much larger than the reduced crisis risk engendered by the lower debt.”

The economists rejected the notion that austerity could be good for growth by boosting the confidence of the private sector to invest. It said that in practice, “episodes of fiscal consolidation have been followed, on average, by drops rather than by expansions in output. On average, a consolidation of 1% of GDP increases the long-term unemployment rate by 0.6 percentage points.”

McDonnell said: “The International Monetary Fund has summarised what a growing consensus among economists across the globe now think, that Osborne-style austerity economics increases inequality and instability, and undermines growth.

“It’s time for the chancellor to listen to the experts, change course and put an end to his failed policy of austerity with a solid commitment by government to deliver an industrial strategy backed up by patient investment to create the high-tech, high-wage economy of the future.”

The three IMF research department economists – Jonathan Ostry, Prakash Loungani and Davide Furceri – said the benefits of some important parts of the neoliberal agenda appeared to have been overplayed, while the risks from short-term flows of hot money in and out of countries loomed large.

“In the case of fiscal consolidation, the short-run costs in terms of lower output and welfare and higher unemployment have been underplayed, and the desirability for countries with ample fiscal space of simply living with high debt and allowing debt ratios to decline organically through growth is underappreciated.”

They concluded that the increase in inequality threatened to be self-defeating. “The increase in inequality engendered by financial openness and austerity might itself undercut growth, the very thing that the neoliberal agenda is intent on boosting. There is now strong evidence that inequality can significantly lower both the level and the durability of growth.”

Austerity doesn't seem to affect Eton educated Bullingdon bully boy millionaire tories though.The greatest lie of them all was "We are all in it together".Hopefully a narrow remain vote will be followed by a vote of no confidence in Cameron and Osborne. Lying turd faced bast Ards.

_________________I have never met a caring sharing and compassionate Tory.Tories and far right wingers. All liarsVisit Turkey. But beware, Sharia law is watching everyone.

No... the legacy of labours uncontrolled spending and spending commitments has increased the national debt... which has still happened after Torys have tried to reduce the spending commitments that they inherited from labour... and as labour have opposed ALL proposals to reduce spending, had they remained in govt, IT WOULD BE EVEN WORSE!!!

_________________“Truth is ever to be found in the simplicity, and not in the multiplicity and confusion of things.” — Isaac Newton

'The further a society drifts from truth the more it will hate those who speak it.' — George Orwell

No Tommy, you are. The Tories were told austerity would hit the poorest hardest, increase the national debt because the money coming in from taxes and businesses would decrease massively and it would make the recession last longer, all of which it did. The Tories, and the Tories alone are responsible for this and the IMF have said over and over again that it was NOT Labour policies that caused the recession, in 2008 we were in the best position we had been for a long time, it had one cause, and that was the Banks and the Financial Sector.

As more and more people discover the truth on social media, the deficit myth promoters know the game is up. They clearly underestimated people's ability to discover the truth and their enthusiasm to share it with others.Below are the four overspending claims. The eight facts come from the Treasury, ONS, OBR, IMF, OECD and IFS. The claims are:Claim One When will you apologise for running a structural deficit even before the recession the recession?Fact one, apologise for what for being a deficit denier? Structural deficits, budget deficits and government borrowings PSNB have occurred in nearly every year since records began. The fact is very rarely have we had surpluses - OBR page 104. According to this claim, we have been overspending for two centuries - nonsense. Also read Claim one.Fact two, after ten years of growth in 2007 Labour had a structural deficit of virtually zero at - 0.4% and also budget deficit of - 0.4% OBR page 104.Fact three, the IMF say the last time we Conservative were in office during 1979 - 1997 we had 18 structural deficits in 18 years. Therefore, we Conservatives also ran structural deficits before all three recessions that occurred during 1979 - 1997. Moreover, it is clear we never fixed the roof whilst the sun was shining.Claim Two When are Labour going to apologise for overspending?No self-respecting economist would simply cherry pick a few years increase in the deficit during 1997 - 2007 and then have the Chutzpah to declare there was overspending in all of that period. This type of selective analysis is not only amateurish but it is also transparently biased and misleading. As in any other field or subject, the entire alleged period would have to be sampled before any such claim could be validated. The facts below are derived from the Treasury and ONS data collected by the OBRpage 104.Fact four, in the alleged period of Labour overspending 1997 to 2007 the structural deficit was cut by 82%, the budget deficit by 85%, PSNB borrowings by 32% and Debt by 16% - read claim two.Compare this to our mythical outstanding financial record during 1979 and 1997 and you discover we Conservatives are in no position to lecture Labour.Hence, in 1979, we inherited a Budget deficit of - 1.8% and by 1997 we actually increased it to - 2.7%, which is a huge increase of +50%. Likewise, we also increased the structural deficit by +29% but cut borrowings PSNB by only 17% and we cut the debt by a mere 3%.Fact five, 1997 to 2007 Labour's average budget deficits was virtually zero at - 0.1% per annum, the structural deficits was also - 0.1% whilst PSNB borrowings was mere 0.9%.In contrast, our average budget deficit per annum was much higher at -1.9%, the structural deficit was a mere - 0.9% and borrowings PSNB was much higher at 3.3%.Claim Three If Labour were not running a structural deficit in the run up the recession, we would not have inherited the mess they created.A structural deficit of virtually zero of - 0.4% or a budget deficit of also - 0.4% in 2007 was not the cause of a high budget deficit of - 7.6% and PSNB borrowings of 11.1% in 2010 - OBR March 2011 Page 141Fact six, the IMF concludedthe UK deficit increased because of a large fall in income GDP and output caused by the global banking crisis.Fact seven, a recession causes the deficit to increase because as income falls; tax revenues also decline; consequentially as businesses cuts back the unemployment rate rises, which causes government expenditure to increase because more people start to claim unemployment benefits and as result the budget deficit rises. This automatic chain reaction occurs in every recession and it occurred in 2008 triggered off by the global banking crisis - its basic economics.Finally, it also increased because of the bank bailouts and the fiscal stimulus - read claim three.Claim Four Labour was running the biggest structural deficit in the G7 before the recession.Hence, Andrew Marr asked Ed Balls:"It is true to say, is it not, that in the run-up to the financial crisis Britain was running the worst structural deficit of any of the G7 countries?" - Marr 30th January 2011.Fact eight, it was misleading to say: "It is true to say, is not" because at that time (January 2011) the IMF and OECD said the UK did not have the biggest structural deficit. TheIMFstated that the 2006 structural deficit was the third highest at - 2.6% and in 2007 it was the second biggest at - 3%. The OECD concluded the same thing as confirmed by the IFS who stated:"On the OECD measure, the UK had a structural deficit of 3.5% of national income in 2007. This was the third highest among the G7 countries and the sixth highest among the 26 OECD countries" - IFS page 10 paragraph 3.The 2006 and 2007 structural deficits was later changed to the biggest only when the IMF published its October 2012 data because the ONS then decided to double its figures - read claim fourSo as not to mislead, it is very important to point out there are two structural deficits. The first is the actual measure based on the budget deficit, which George Osborne plans to eliminate, and was virtually zero at - 0.4% in 2007. The second is the OECD and IMF measure based essentially on the ONS PSNB borrowings figure.To conclude, the claims simply fail to stand up to the facts and even if a few or all of the Labour MP's admit to overspending; it does not change or nullify the facts from the Treasury, ONS, OBR, IMF, OECD and IFS.The overspending myth is over because the facts are not going away. As wise man once said:

"Facts do not cease to exist because they are ignored"

― Aldous Huxley

Hence, if like me you believe people are entitled to the truth; share this on Facebook, Twitter, blogs, WhatsApp and email; so the truth can be discovered by all; now and in the future.

Teaching political economics to Tommy is akin to teaching theoretical quantum physics to a mealworm.You are wasting your breath Sassy. Tom can only think 1 thing in a session. He fixates about his only belief that far right is the only way - and everything else is wrong.

_________________I have never met a caring sharing and compassionate Tory.Tories and far right wingers. All liarsVisit Turkey. But beware, Sharia law is watching everyone.

You can but you need to spend what you borrow on profit/income generating assets.

Your point would be better if you focused on the unnecessary spending and spending with no return, while I support such things social security systems are costly and borrowing to fund them is a mistake.

although your politicians have their snouts even deeper in the trough than ours so i would suggest starting with their perks

_________________My job is to travel the world delivering Chaos and Candy.

We don't know the Questions... does that means we cannot seek the Answers?